Contractor liable for fall in property value during his delay

12th April 2013

Contractors causing delays in projects in breach of contract can be liable for consequential losses such as those caused by falls in property values, the Court of Appeal has ruled.

An engineering firm caused a delay of 15 months in a property development project because it failed to deal with a planning issue properly. The delay was in breach of the engineer's contract and the parties had specifically agreed a fixed date for completion of the work. During the delay property values fell significantly. The developer lost £400,000 and claimed that amount in court, despite the fact the engineer's fee for the job was only £20,000.

Compensation for breach of a commercial contract is only payable if the loss suffered is not too 'remote', ie the loss must have been reasonably foreseeable as a consequence of the breach at the time of the contract. The engineer argued the fall in property values was not reasonably foreseeable.

The Court of Appeal disagreed, ruling that the delay was so long that a drop in value as a result of the recession wasreasonably foreseeable - particularly given the engineer's knowledge of the developer's plans and timescales and the state of the market. It drew an analogy with cases involved delayed delivery of goods, when losses arising from changes in the market price of those goods have been recoverable.

The court also said it was irrelevant that the compensation was disproportionate to the size of the engineer's fee.

Recommendation

Parties to a contract should:

Ensure any delays in performing their side of the bargain are not so lengthy that losses to the other side might become 'reasonably foreseeable' when they would not have been otherwise.

Be aware of the possible consequences of agreeing fixed dates for completion of work.

Consider whether to exclude or limit liability for losses, to the extent allowed by the law, in the contract.

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